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Karp v. Kelowna & District Hospital Society
Decision date: 1998-11-12
Court: British Columbia Supreme Court
Cited: [1998] EXLAW 282; (1998), 65 L.C.R. 241
Reviewer: Robert S. Reid
Interest: none

Facts

The petitioners [the "Karps"] sought an order directing an arbitration of the dispute with the respondent [the "Kelowna & District Hospital"] pursuant to an Agreement between them. The dispute concerned two lots owned by the petitioners, situated adjacent to property owned by the respondent. The two lots were required to construct a cancer treatment centre.

In February 1994, the respondent gave the petitioners' solicitor two appraisals, indicating the value of the two lots. The parties entered into an "Agreement to Purchase," which provided for the petitioners to sell their property for the sum of $384,000, with a completion date of September 30, 1994.

The Agreement contained a provision for the purchase price to be adjusted upward after the completion date if the vendor gave notice in writing of its request to have the purchase price reviewed on or before October 15, 1994. If the vendor failed to give notice, it was deemed to have accepted the purchase price as fair and reasonable. The vendor was to provide, with the notice, a copy of an appraisal indicating a market value greater than the purchase price. If the purchaser disagreed with the appraisal and gave notice within 14 days, the issue of the market value was to be referred to binding arbitration; the arbitrator would determine the value according to the Expropriation Act. The Agreement also stated that "Time shall be of the essence of this agreement."

The petitioners' appraiser was unable to complete his appraisal by the October 15 deadline. The petitioners notified the respondent of their intention to have the purchase price reviewed, and that they were encountering difficulty with the appraisal. It was not delivered to the respondent until October 19, and the report stated that there were still a number of assumptions and legal arguments that must be clarified, and that the completion of a full self-contained appraisal report would take a minimum of 120 days.

Issues

The petitioners failed to deliver the appraisal to the respondent within the time limit set out in the Agreement. Should the court extend the time limit under the jurisdiction in the Commercial Arbitration Act?

Was an "appraisal" in accordance with the Agreement delivered?

If an appraisal was not delivered, were the petitioners entitled to relief from forfeiture on equitable grounds?

The trial judge determined that he had the jurisdiction, under the Commercial Arbitration Act, R.S.B.C. 1996, c. 55, s. 20, to extend the deadline, and he did extend the time to October 19. However, he determined that the report submitted was not an "appraisal" within the words of the Agreement, which when the terms and conditions were considered, contemplated an amount certain. In Bambrough v. Ontario (Minister of Housing), [1974] EXLAW 5, the Ontario Divisional Court stated, at para. 6, that a person whose property was being expropriated should be able to determine from the appraisal report if he should proceed to arbitration or should accept the offer that was made.

The appraisal report submitted by the petitioners' appraiser does not contain a definite price. The judge stated that it was "so fraught with qualifications and exceptions" that it could not be considered an appraisal of the property. Therefore, it was held that the petitioners had not complied with the terms and conditions of the Agreement; they had not submitted an appraisal report.

On the issue of whether or not the petitioners were entitled to relief from forfeiture, the trial judge found that what the petitioners acquired in this case was really an option to arbitrate, which, because they did not deliver a proper appraisal, they did not exercise. He held that there was no jurisdiction to grant the relief required. In B.C. Dev. Corp. v. NAB Holdings Ltd. (1986), 6 B.C.L.R. (2d) 145, the BC Court of Appeal took a very restrictive approach to the application of the doctrine of relief from forfeiture. "The circumstances under which relief should be granted are where, first, the sum forfeited is out of all proportion to the loss suffered and, second, it is unconscionable to retain the money, in the traditional equitable sense of unconscionability." The BC Court of Appeal, in Jim Pattison Industries Ltd. v. 1854 Holdings Ltd. (1990), 76 D.L.R. (4th) 119, refused to provide relief in a situation where a tenant had failed to deliver a notice of election to terminate its lease prior to the expiration of the term. The court refused to extend the doctrine of relief from forfeiture to two parties to a commercial instrument with equal bargaining power. Otherwise it would turn the effect of every cancellation or termination clause into a matter of judicial discretion.

Furthermore, the trial judge found that "time was to be of the essence" in this Agreement. Failure to provide an appraisal report was a fundamental breach, and the failure to comply with the terms of the Agreement meant that it was terminated or lapsed when the necessary appraisal was not given to the respondent. In response to the petitioners' argument that the failure to provide an adequate appraisal report was because of their appraiser, the trial judge cited from Williams Lake Realty (1978) Ltd. v. Symynuk (1982), 39 B.C.L.R. 313 (B.C.C.A.) where it was said that "due diligence is not an answer to failure to comply with a provision in the contract that time is of the essence." The petition was dismissed.

Counsel for the Petitioners: Robert E. Groves
Counsel for the Respondent: Paul L. Mitchell and David M. Rush


Robert S. Reid is the Assistant Dean of Admissions and Career Placement, and an associate professor in the Faculty of Law at the University of British Columbia. Bob also teaches the first-year course in Property Law. A member of the Notary Board of Examiners, Bob teaches our graduating Notaries.

This case review was originally published in March 1999 under the title "Appraisals and Relief from Forfeiture" by the Society of Notaries Public of British Columbia in their quarterly newsletter, The Scrivener. It has been reproduced here by the Expropriation Law Centre with permission.

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